WMR ASSOCIATES, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended September 30, 2005 and
Year Ended December 31, 2004
WMR ASSOCIATES, INC. AND SUBSIDIARY
CONTENTS | PAGE |
Report of Independent Accountants | 1 |
Consolidated Balance Sheets | 2 |
Consolidated Statements of Income and Retained Earnings | 3 |
Consolidated Statements of Cash Flow | 4 |
Notes to Consolidated Financial Statements | 5 |
Report of Independent Accountants
Board of Directors and Shareholder
WMR Associates, Inc.
Port Jefferson, New York
We have audited the accompanying consolidated balance sheets of WMR Associates, Inc. and Subsidiary (the “Company”) as of September 30, 2005 and December 31, 2004 and the related consolidated statements of income and retained earnings and cash flows for the nine months ended September 30, 2005 and the year ended December 31, 2004. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of WMR Associates, Inc. and Subsidiary as of September 30, 2005 and December 31, 2004 and the results of their operations and their cash flows for the nine months ended September 30, 2005 and year ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America.
/s Margolin Winer & Evens, LLP
Garden City, New York
December 15, 2005
F-1
WMR ASSOCIATES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS | |||||||
September 30, 2005 | December 31, 2004 | ||||||
Current Assets: | |||||||
Cash | $ | 84,986 | $ | 13,691 | |||
Accounts receivable (net of allowance for doubtful | |||||||
accounts of $13,000 and $16,000, respectively) | 176,370 | 220,414 | |||||
Advances to shareholder | 21,644 | — | |||||
Total Current Assets | 283,000 | 234,105 | |||||
Property and Equipment (net of accumulated | |||||||
depreciation and amortization) | 785,295 | 784,499 | |||||
Intangible Assets (net of accumulated amortization | |||||||
of $49,596 and $48,163) | 2,841 | 4,274 | |||||
Goodwill (net of accumulated amortization of $31,206) | 101,794 | 101,794 | |||||
Total Assets | $ | 1,172,930 | $ | 1,124,672 | |||
LIABILITIES AND SHAREHOLDER'S EQUITY | |||||||
Current Liabilities: | |||||||
Accounts payable and accrued expenses | $ | 60,702 | $ | 38,073 | |||
Loan payable - shareholder | — | 3,356 | |||||
Deferred revenue | 46,083 | 47,502 | |||||
Total Current Liabilities | 106,785 | 88,931 | |||||
Minority Interest | 6,457 | 6,265 | |||||
113,242 | 95,196 | ||||||
Commitments and Contingencies | — | — | |||||
Shareholder's Equity: | |||||||
Common stock, $50 par value - 100 shares authorized, issued and outstanding | 5,000 | 5,000 | |||||
Retained earnings | 1,054,688 | 1,024,476 | |||||
Total Shareholder's Equity | 1,059,688 | 1,029,476 | |||||
Total Liabilities and Shareholder’s Equity | $ | 1,172,930 | $ | 1,124,672 | |||
The accompanying notes are an integral part of these statements.
F-2
WMR ASSOCIATES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
Nine Months Ended September 30, 2005 | Year ended December 31, 2004 | ||||||
Revenues: | |||||||
Services | $ | 1,528,312 | $ | 2,035,621 | |||
Rental income | 35,036 | 77,430 | |||||
1,563,348 | 2,113,051 | ||||||
Costs and Expenses (Income): | |||||||
Costs related to services | 755,429 | 971,801 | |||||
Selling, general and administrative expenses | 447,005 | 638,982 | |||||
Other income | (262 | ) | (5,623 | ) | |||
Income before Minority Interest | $ | 361,176 | $ | 507,891 | |||
Minority Interest | 192 | 1,422 | |||||
Net Income | 360,984 | 506,469 | |||||
Retained Earnings - beginning of period | 1,024,476 | 1,120,130 | |||||
Distributions | (330,772 | ) | (602,123 | ) | |||
Retained Earnings - end of period | $ | 1,054,688 | $ | 1,024,476 | |||
The accompanying notes are an integral part of these statements.
F-3
WMR ASSOCIATES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2005 | Year Ended December 31, 2004 | ||||||
Cash Flows From Operating Activities: | |||||||
Net income | $ | 360,984 | $ | 506,469 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 25,583 | 46,249 | |||||
Minority interest in earnings | 192 | 1,422 | |||||
Decrease (increase) in operating assets: | |||||||
Accounts receivable | 44,044 | 31,399 | |||||
Increase (decrease) in operating liabilities: | |||||||
Accounts payable and accrued expenses | 22,629 | 9,266 | |||||
Deferred revenue | (1,419 | ) | (3,416 | ) | |||
Net Cash Provided by Operating Activities | 452,013 | 591,389 | |||||
Cash Flows From Investing Activities: | |||||||
Additions to property and equipment | (24,946 | ) | (2,179 | ) | |||
Advances to shareholder | (21,644 | ) | — | ||||
Net Cash (Used In) Investing Activities | (46,590 | ) | (2,179 | ) | |||
Cash Flows From Financing Activities: | |||||||
Payment of loan payable - shareholder | (3,356 | ) | (35,000 | ) | |||
Distribution to shareholder | (330,772 | ) | (602,123 | ) | |||
Net Cash (Used in) Financing Activities | (334,128 | ) | (637,123 | ) | |||
Net Increase (Decrease) in Cash | 71,295 | (47,913 | ) | ||||
Cash, Beginning of Period | 13,691 | 61,604 | |||||
Cash, End of Period | $ | 84,986 | $ | 13,691 | |||
The accompanying notes are an integral part of these statements.
F-4
WMR ASSOCIATES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
1. | Basis of Presentation and Summary of Significant Accounting Policies |
Description of Business - WMR Associates, Inc., also doing business as North Shore Answering Service, provides customers with telephone answering services, including telemessaging, dispatching and voice mail services. These customers, which are primarily located Long Island, New York, are made up of both physician based and commercial accounts.
Consolidation Policy - The accompanying consolidated financial statements include the accounts of WMR Associates, Inc., a "Subchapter S" corporation and its 99% owned subsidiary, North Shore Professional Building, a partnership (together, the “Company”). All material inter-company balances and transactions have been eliminated in consolidation.
Property and Equipment - Property and equipment are recorded at cost. Depreciation and amortization are computed by the straight-line method at rates adequate to allocate the cost of applicable assets over their expected useful lives, ranging from five to thirty nine years
In accordance Financial Accounting Standards Board Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company reviews its fixed assets and intangible assets with finite lives for impairment when there are indications that the carrying amounts of these assets may not be recoverable. No impairment losses were recorded during the period ended September 30, 2005 or year ended December 31, 2004.
Goodwill and Other Intangible Assets - Goodwill represents the cost in excess of the fair value of the tangible and identifiable intangible net assets of businesses acquired. Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets.” Under this standard, goodwill and indefinite life intangible assets are no longer amortized, but are subject to annual impairment tests. The Company completed the annual impairment test during the fourth quarter of 2004 and no impairment was determined. Future annual impairment tests will be performed in the fourth quarter.
Other intangible assets with finite lives will continue to be amortized on a straight-line basis over the periods of expected benefit. The Company's other intangible assets include: (a) noncompete agreement which is being amortized over its contractual life of 5 years and (b) customer lists which are being amortized over 5 years.
F-5
Accounts Receivable - Trade accounts receivable are reported in the balance sheet at their outstanding principal balance net of an estimated allowance for doubtful accounts.
Sale terms usually provide for payment within 30 days of invoice date. An allowance for doubtful accounts is provided based upon a review of outstanding receivables, historical collection information and existing economic conditions. Accounts receivable are charged against the allowance (written-off) when substantially all collection efforts cease. Recoveries of accounts receivable previously charged off are recorded when received. Bad debt expense for the nine months ended September 30, 2005 and year ended December 31, 2004 was insignificant. The Company’s sales arrangements generally do not provide for interest on past due accounts.
Revenue Recognition - Revenue are recognized as services are provided. Billings rendered in advance of services are recorded deferred revenue and recognized as the services are provided.
Advertising Expense - The Company expenses advertising costs as incurred. Advertising costs for the nine months ended September 30, 2005 and year ended December 31, 2004 were approximately $40,000 and $60,000, respectively.
Income Taxes - The Company operates as a “Subchapter S” corporation under the Internal Revenue Code. As such, no provision or credit for federal income taxes is recognized in the accompanying financial statements because the Company’s operating results are included in the federal income tax return of its stockholder. State income taxes are not significant.
Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statement and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
F-6
2. | Property and Equipment |
Property and Equipment consist of the following:
September 30, 2005 | December 31, 2004 | ||||||
Land | $ | 163,250 | $ | 163,250 | |||
Building | 801,642 | 801,642 | |||||
Machinery and equipment | 788,694 | 763,748 | |||||
Furniture and fixtures | 96,155 | 96,155 | |||||
Building improvements | 84,000 | 84,000 | |||||
1,933,741 | 1,908,795 | ||||||
Less accumulated depreciation | (1,148,446 | ) | (1,124,296 | ) | |||
$ | 785,295 | $ | 784,499 |
Depreciation expense for the nine months ended September 30, 2005 and year ended December 31, 2004 was $24,150 and $39,434, respectively.
3. | Intangible Assets and Goodwill |
Intangible assets and goodwill consist of the following:
September 30, 2005 | December 31, 2004 | ||||||||||||
Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | ||||||||||
Noncompete Agreement | $ | 15,000 | $ | 15,000 | $ | 15,000 | $ | 15,000 | |||||
Customer Lists | 37,437 | 34,596 | 37,437 | 33,163 | |||||||||
Goodwill | 133,000 | 31,206 | 133,000 | 31,206 | |||||||||
Total | $ | 185,437 | $ | 80,802 | $ | 185,437 | $ | 79,369 |
Amortization expense for the nine months ended September 30, 2005 and year ended December 31, 2004 was $1,433 and $6,815, respectively.
4. | Advances to Shareholder |
During the nine months ended September 30, 2005 the Company made non interest bearing advances to its shareholder. These advances are due on demand.
5. | Employee Savings Plan |
The Company sponsors a “simple”savings plan that is available to all eligible employees. Participants may elect to defer a portion of their compensation, subject to an annual limitation provided by the Plan. The Plan provides for a 100% matching contribution up to a maximum of 3% of each employee’s deferral. The Company contributed $6,439 and $8,408 for the nine months ended September 30, 2005 and year ended December 31, 2004, respectively.
6. | Subsequent Event |
On October 3, 2005, the Company sold the operations and substantially all of the assets of WMR Associates, Inc. for approximately $2.7 million. Of the total purchase price, 80% was paid at closing and the remaining 20% will be paid on the first year anniversary of the agreement.
F-7